Cost Growth Puts the Brakes on the USA’s Littoral Combat Ship Program

Cost growth recently led to stop-work on Team Lockheed LCS-3 construction. Now, in the wake of a comprehensive two-month program review, Secretary of the Navy Donald C. Winter had announced that he is prepared to lift the stop work order – under a renegotiated contract, and as part of a revised program plan. In the end, however, the Navy canceled the contract for LCS 3 part-way through construction.

This new plan will also affect the General Dynamics/ Austal team, whose competing trimaran design for LCS 2 and LCS 4 is expected to offer interesting handling and survivability characteristics, plus a significantly larger helicopter landing area. Under the restructured Littoral Combat Ship program plan, however, the Navy will recommend deferral of FY 2007 LCS procurement, and use those funds to complete the construction of LCS 1-4 by the Lockheed and General Dynamics teams.

This will be part of a wider package of efforts aimed at controlling program costs… before those costs raise comparisons, questions, and dilemmas that begin to control the program.

“LCS 3 construction may be resumed under revised contract terms that rebalance the risk of cost growth between the government and industry. LCS 4 construction [DID: by the General Dynamics/Austal team] will continue as long as its costs remain defined and manageable.”

“Discussing possible cost overruns on the Independence [DID: GD/Austal’s LCS 2], Etter said GD was experiencing “some of the same reasons” for cost growth on the Freedom, including increases in the cost of materials and the impact of the Naval Vessel Rules (NVR), a new set of construction standards implemented after Lockheed Martin began building its first ship, causing re-work.”

Making significant changes after shipbuilding begins is always an expensive way to do business with one’s suppliers.

Some members of Congress have been pushing for a program speed-up and procurement of more ships, but the platform’s cost issues appear to have derailed that momentum. After FY 2007 shipbuilding monies are used to complete existing orders, the US Navy intends to procure a more LCS ships in FY 2008 and 2009 – but it will be a reduced number of ships, on the way to a quicker selection of a single final design.

Instead of buying 3 LCS ships in 2008, and then ramp up to building 6 ships per year beginning in 2009 through 2012, amended procurement plans would buy 2 LCS ships in 2008, and 3 in 2009. Congressional votes, which are becoming less supportive of the LCS program as its costs rise, could trim that number further. For instance, the US Senate’s proposed FY 2008 defense bill would fund just 1 LCS ship.

At one time, there had also been talk of building more than one LCS design type, or of buying up to 17 of the frigate-sized (about 130m/ 450 feet long) LCS ships over several years before making a final selection. The new plan removes that option from the table. Instead, the next stage of the program will involve an operational assessment of all critical factors between LCS 1 and LCS 2, leading to selection of a single seaframe configuration winner in FY 2010. The selected ship will have a Navy-specified open architecture combat system, and the design may even have a different builder who will be chosen after “a full and open competition… to reduce life cycle costs of the program.”

In practice, that procedural move may not mean much; especially if the design relies on specialty construction techniques where the designer has a unique set of relevant skills that would be expensive for others to match. Even without that kind of edge, however, it’s very difficult to underbid a company that has already manufactured examples of its design, because the experience has taught them where the next round of savings can come from. The Navy’s procedural move might lead to a lower bid from the design winner, but an award in which the original designer loses the manufacturing contract is unlikely.

Depending on the final results of cost-reduction efforts, however, the Littoral Combat Ship runs deeper program risks than mere restructuring.

UPDATES:

Nov 1/07: The US Navy cancels construction of LCS 4 by the General Dynamics/Austal team, leaving its LCS acquisition strategy adrift amidst deep proposed funding cuts from Congress in the FY 2008 budget.

The LCS modular, swappable mission suites have been widely hailed as a major step forward in upgradeability and versatility, building on the lessons from Denmark’s successful corvette-sized (54m/ 180 foot long) Flyvefisken/ “Standard Flex 300″ Class multi-role ships, and frigate-sized (137m/ 450 foot) Absalom Class frigates/ command ships/ small landing ships. On the other hand, LCS designs have been criticized for their low level of offensive and defensive armaments: A 5-inch naval gun; RIM-116 SeaRAM short range defensive missiles; up to 4 x 40-missile launchers for light short-range NETFIRES missiles, each with striking power equal to a 155mm shell; plus any missiles or 70mm rockets carried by its accompanying helicopters (up to 2 H-60 slots or up to 4 MQ-8B Fire Scout UAV slots). Present LCS designs don’t even carry torpedo tubes, or vertical-launch systems (VLS) that could accommodate present and future attack and/or defensive missiles.

Even the small Danish Flyvefisken Class has a Mk 48 VLS and can carry Harpoon anti-ship missiles, or longer-range air defense missiles, depending on which mission set they’re configured for. The LCS weapon array also compares unfavorably with corvettes like Israel’s US-built, $260 million Sa’ar 5 Eilat Class, and Sweden’s ultra-stealthy Visby Class; or even some small Fast Attack Craft classes. Not to mention comparable-sized multi-role frigates like the new Franco-Italian FREMM Class or Britain’s much older Type 23/Duke Class.

In exchange for their capabilities, modern frigates like the Franco-Italian FREMM Class come with a price tag of around $400 million. The original LCS cost, in contrast, was expected to be closer to $220 million. Current cost overruns on Lockheed Martin’s initial LCS 1 have created a price tag of about $375 million per ship. Despite being in the early stages of construction, there are also unconfirmed reports that the General Dynamics/ Austal LCS 2 could be headed for a $320-350 million price tag of its own.

At those price tags, the Littoral Combat Ship will trigger a very different set of comparisons – along with questions concerning their ability to fulfill a $400 million platform’s expected set of naval roles. A versatile surveillance and special forces insertion ship whose design isn’t flexible enough to accommodate anything beyond token opposition won’t meet those expectations. This is especially true if the DDG-1000 Zumwalt Class and its derivative CG (X) cruiser class are built in small number due to their ballooning costs. As Vice-Admiral Mustin (ret.) and Vice-Admiral Katz (ret.) put it in a 2003 USNI Proceedings article:

“Because the Navy has invested heavily in land-attack capabilities such as the Advanced Gun System and land-attack missiles in DD (X), there is no requirement for [the Littoral Combat Ship] to have this capability. Similarly, LCS does not require an antiair capability beyond self-defense because DD (X) and CG (X) will provide area air defense. Thus, if either DD (X) or CG (X) does not occur in the numbers required and on time, the Navy will face two options: leave LCS as is, and accept the risk inherent in employment of this ship in a threat environment beyond what it can handle (which is what it did with the FFG-7); or “grow” LCS to give it the necessary capabilities that originally were intended to reside off board in DD (X) and CG (X). Neither option is acceptable.”

Especially if the low end has grown to a cost level that makes it equivalent to other countries’ major surface combatants, while falling short on key capabilities that will be required in the absence of higher-end ships.

Cost control has become a focus issue for the current LCS program. If those efforts are not successful, or a wider set of firepower options aren’t made available, the LCS program itself risks a future where it becomes a focus issue for cost control.

Additional Readings & Sources

National Defense magazine (August 2007) – Littoral combat ship could slip behind schedule as price tag nears $500 million. “As Congress battles over the Defense Department’s budget, lawmakers have signaled their displeasure at LCS cost overruns and delays. The number of littoral combat ships that policymakers allow the sea service to buy in 2008 could portend whether the program uprights itself in the next few years, say analysts.”

Danish Navy – Absalom Class (2004-). These multi-role ships can act as frigates, minelayers, command ships, hospital ships, or even as small roll-on/ roll-off landing ships thanks to their “Flex-Deck” and other features.